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Tuesday, March 13, 2012

How you get your money back from a borrower

It took me many, many years in banking until I understood the essence of making good loans. I, like everyone else, had started out with credit and other sophisticated analyses. And when a borrower got into trouble, one had to make sure that one's collateral was ok and that no more money would go out the door without special approval.

The truth, however, is quite simple: if you want to get your loans repaid, you have to make your borrower strong and not weak. Bankers' meetings (with lawyers also present) focus on getting one's money back without considering how to make the borrower strong. That does not work.

Case study Greece: if anyone has made proposals so far as to how to make the Greek economy strong, please let me know. All I have heard in the last two years are rescue packages, PSI, CAC, Eurobonds, etc. etc.